By Rachel E. Stassen-Berger and Baird Helgeson

Minnesota's deficit projection shrank to $994 million for the rest of this budget cycle, from $1.2 billion projected late last year.

But there are dark times ahead — state economists predict Minnesota's budget deficit will be $5.8 billion in the next two-year cycle.

The short-term prediction, which projects state spending and revenue through the end of the state's 2011 fiscal year, means lawmakers and the governor can down to the serious work of righting the state's budget. That task will occupy them most of the rest of the legislative session and they make decisions about how to trim budgets or raise revenue to fill the gap.

Anti-tax Gov. Tim Pawlenty, a Republican, released his budget fix last month. That budget would have cut about $800 million in state spending and used $387 million in federal dollars to fill the gap.

The forecast number comes on a day when the state saw some bright news on jobs.

According to figures released Tuesday, Minnesota employers added 15,600 jobs in January, the largest one-month gain in state employment since April 2005. The Minnesota Department of Employment and Economic Development also said the state's unemployment rate fell to 7.3 percent in January from 7.4 percent in December. The national unemployment rate was 9.7 percent in January.

Agency commissioner Dan McElroy cautioned not to get too joyful about the trend.

"The unemployment rate has been trending downward in recent months, but it's still too early to say whether the state economy has reached a turning point," he said in a news release.